Bond prices nudge up, call rate stays steady

Mumbai, Apr 28 | Updated: Apr 29 2006, 05:30am hrs

Indian bond prices rose on Friday after U.S. Federal Reserve Chairman Ben Bernanke said the Fed could pause at some point in its rate tightening campaign. But dealers said the gains may not last due to a government bond sale next week and a central bank decision to increase the amount it raises via the weekly treasury-bill auction as a way of absorbing excess liquidity.

The yield on the benchmark 10-year bond closed at 7.38 %, down from Thursday's close of 7.42 percent. Amongst the actively traded paper 9.39% government stock maturing in 2011 ended the trading session at Rs 110.32 with the corresponding yields ruling at 6.97%. "From now on, the market will slide and I expect the 10-year bond yield to cross 7.50% by the middle of next week," said a dealer at a foreign bank.

Call rates in the inter-bank money market closed flat at 5.50-5.60%, amid comfortable liquidity conditions in the system. This could be evinced from the Reserve Bank of India (RBI) absorbing Rs 20,795 crore through its first reverse repo auction window and another Rs 27,010 crore through second reverse repo auction on Friday.

The Indian rupee gained past a psychologically key 45-per-dollar mark on Friday as the dollar fell overseas after the U.S. Federal Reserve said it could pause in its rate tightening campaign. The domestic currency ended at 44.9625/9700, 0.13 percent higher than Thursday's close of 45.02/03.

Traders said sentiment was also lifted by Indian shares which rebounded from a 4% fall at the start to end marginally higher after the market regulator put a stay on a ban on a leading brokerage.

"It was the dollar's drop which helped the rupee gain past the 45 per dollar mark," said a trader at a foreign bank.

"Month-end demand for dollars from oil companies also receded and these factors were helping the rupee. But for suspected central bank intervention, the rupee would have risen past 44.90."

On the forward market front, annualized dollar premias dipped on Friday. The six-month annualized dollar premia ended the trading session at 1.24 % as compared to the previous close 1.34%.